UK Forex brokers are considered amongst the best in the World. Compare companies that offer forex trading platforms online.
All the brokers are authorised and regulated by the Financial Conduct Authority (FCA) where client funds are segregated and protected under FSCS. Note: If you want to convert one currency to another and send money abroad you need a currency broker.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 74-89% of retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Featured brokers appear first. Learn about how brokers are ranked...
|Featured Forex Broker||What Forex pairs can you trade?||How much does Forex trading cost?||CEO Interview||More Info|
|With IG, you can choose to trade more than 80 currency pairs – from majors, such as GBP/USD to exotics such as HUF/EUR. You can trade these forex pairs via CFDs or spread bets.||Get spreads from just 0.6 points on pairs like EUR/USD with the UK’s No.1 FX provider.|| Visit IG |
Your capital is at risk. 76% of retail CFD accounts lose money
|Trade forex on over 300 forex pairs, including EUR/USD, GBP/USD and AUD/USD, plus our customised range of 12 forex indices.||Spreads on EUR/USD, AUD/USD and USD/JPY start from just 0.7 points. CMC USD Index spreads from 0.25.|| Visit CMC |
|Trade 61+ currency pairs with deep liquidity with pricing from multiple sources.||Get some of the lowest forex spreads on the market with raw spreads from 0.0 pips on Razor accounts||Read Tamas Szabo CEO Interview|| Visit Pepperstone |
|Fineco||Trade 50+ Global Forex pairs Forex pairs with Fineco||Fineco Forex spread are as low as, GBP/USD 1, EUR/USD 0.8, EUR/GBP 1|| Visit Fineco |
|Access 182 FX pairs across majors, minors and exotics, plus spot metals, from only 0.4 pips||Ultra-competitive FX spreads and trade major FX pairs from 0.4 pips. Competitive entry prices and even lower rates for active forex traders.||Read Andrew Edwards CEO Interview|| Visit Saxo |
|Trade 48 currency pairs, 24 hours, 5 days a week, micro-lot trading available||Low forex spreads from 0.1 pips on EURUSD, 0.3 pips on GBPUSD and 0.02 on AUDUSD.|| Visit XTB |
|Speculate on over 60 currency pairs with advanced technical analysis tools including Pattern Recognition, ProTrend Lines and advanced indicators plus drawing tools||Low spreads from 0.6 pts on EUR/USD and 0.9 pts on GBP/USD with 24 hour trading on most FX markets|| Visit Spreadex |
|Trade FX CFDs on 60+ Forex Pairs like EUR/USD, GBP/USD and EUR/GBP with up to 1:30 leverage||Variable Forex spreads on currency markets. Plus500 does not charge additional Forex dealing commissions.||Coming Soon|| Visit Plus 500 |
Plus 500 Reviews
|Trade on 84 global FX pairs like EUR/USD, GBP/USD and USD/JPY at City Index with fast execution and tight spreads||Trade forex CFDs, DFT or spread bets with tight spreads from 0.5pts on major FX pairs||Coming Soon|| Visit City Index |
City Index Reviews
|Trade CFDs on 47 of the most popular currency pairs with trades based in USD with eToro Forex||Forex spreads are variable and trading costs are built into the price. Daily finance is charged on overnight positions.|| Visit eToro |
What is Forex trading video discussion
Watch our video interview with Ryan O’Doherty, Head of Product Development at CMC Markets to find out more about forex trading
Today, we’re going to talk about forex brokers and forex trading. We’re here with Ryan O’Dougherty from CMC Markets. Ryan, welcome, thanks for joining us.
So you’ve been with CMC for six or seven years now, is that?
No, 13 years now.
13 years. Alright, well I have not done my research there.
It’s been a while.
So at CMC, you’re a forex broker; you can trade forex through spread betting and CFDs. Do you want to quickly talk us through exactly what a forex broker does?
It’s a very exciting market, the FX market. It’s the most liquid market in the world. There’s almost, you know, US $5 trillion transacted on a daily basis. It’s quite a different market than some others. It’s off exchange, so it’s an OTC market that’s run through the interbank market, so the major banks, so the ones that are actually playing and creating this market and prices. But from a CFD and spread bet perspective, in trading in FX, you know, because of its liquidity and because of its size and its 24-hour nature, it’s a really exciting market for trying to play because the spreads are lower. You’ve also got a lot more opportunity. So it’s quite volatile, or it can be, and we’ll talk about how that volatility plays out through fundamental events and everything like that. So it’s really the buying and selling of currencies. You know, let’s say the pound versus US dollar, you think the pound is going to strengthen, the economy, let’s say in the UK, is going up, you can buy the pound versus US dollar and then profit from that movement going up.
And of all the customers you have, obviously, CMC’s a London-based broker, but you have offices all over the world, what does your sort of typical client look like? You know, is there a standard client or do you deal with everyone?
I would love to say yes but really, I mean after all the different events and all the clients that you speak you over the period, they all are very different. They’ve all got different levels of experience. Some clients are just getting into the markets, especially with new digital banking methods these days and being exposed to digital transfers for currencies, when clients are holidaying, people are more interested in the FX markets and how they change, and Brexit’s been one of those tools as well. You know, you’ve seen the pound drop significantly. So you get a lot of new-wave traders coming in that are learning about FX markets, because it has got that volatility, you know, there’s opportunity for them to make money based on that. But then you get a lot of the more experienced, so traders that have been trading out there for a long time, that are used to what the FX markets are doing, they feel very comfortable. But you know, trading through CFD and spread betting gives them the opportunity to set up their different order types and have that flexibility.
So of those two different types of traders, you’ve obviously got the short-term technical traders and you’ve got the slightly longer-term, event-driven, fundamental traders. Do you see a significant difference between the two or do they tend to overlap?
No, you do. It’s interesting to watch the way that people go about trading. So you will get a lot of people, and because FX trading can be very technical, there are key levels that are in the marketing, you can see them trending quite significantly.
Do you think they’re self-fulfilling prophecies?
I think there’s an element of both. I think there is a bit of self-fulfilling, because if you see a key level, then you know, if you’ve been in the market for a while and you think well actually, where do I take my profit, then a key resistance level is actually a great opportunity to cut some of the losses, see what happens afterwards. If it drops down, great, you can get back in, or if it goes above, then we might see more momentum going up, and then you can buy back in that way. So technical trading is a bit of a self- fulfilling prophecy. However, it’s something that a lot of traders are looking at. So it’s important to be aware of those key levels.
So you do have those technical traders, but you also have people that have been trading it for quite some time that are really familiar with the fundamental, and I find the fundamentals an extremely important part of FX trading. The economic calendar’s the perfect example. You get all these events being populated on a daily basis, so you get your CPI figures, your GDP, your non-fund payrolls. All signals of the health of an economy. And basically, FX trading or FX currency pairs and their value is a way of showing you how the economy’s going. So the UK economy’s going well, then you would expect the pound to be going up in value. Not always, but you know, generally, that’s the…
And you have those short-term economic figures, which tend to move the market in the short term, and then you have those sort of, you know, fantastic political events.
Somebody sending out a tweet. And you know, that’s a really good point, because you can be as fundamental as you like and then follow all of the events that are scheduled, and that does help you analyse the markets and figure out whether or not there might a long term. But then there’s all these sort of short-term, especially in the age of Twitter and news being sent to people very, very quickly, you’ll see the markets react to those quite rapidly. And that’s why it’s important, especially when trading FX, which is a margin product, to make sure that you’ve got your sort of risk management orders on, because these moves can happen at any time. You know, you’re not sure of when it’s going to happen. So make sure you put the risk management orders on.
So actually, you’ve just touched on the economic calendar there, which you have on your trading platform. Do you just want to quickly take us through, you know, what a foreign exchange trader would look at when trading?
So I’ve got a number of areas there, so I’ve got your FX quote panels up in the top right, so some of the major FX pairs, showing me what they’re pricing at at the moment and whether or not they’re up or down.
So they’re your spreads as well, aren’t they?
So they’ve got your spread under there; it’s got your low and your high of the day, plus the current bid and offer price. You can click on one of those and get into a trade very quickly. You can see the order ticket there. So you’ve got the order ticket for pound-Aussie; probably tell by the accent that I follow this one quite a fair bit. And then you’ve got underneath that your sort of stop loss. I’ve got a guaranteed stop loss order on that screen at the moment, just in case that price moves against me, I’m guaranteed to get out at 50 points below the current price. So that gives me that protection. But from a trader’s perspective, there’s three sort of areas there, or four potentially, that you can look at. You’ve got your Reuters newsfeed on the left-hand side, which’ll update me on things that are happening on the FX markets. You’ve got the charts. I’ve got two intervals there on the pound-Aussie. I’ve got a long-term interval, showing me the general change over a longer period of time, and then I’ve got a shorter-term interval of one hour there. And you can see the volatility. You can see that huge, big U-turn that happened after a particular tweet went out recently. And that’s the opportunity that clients are looking for, and that volatility. And then on the right-hand side, you’ve got the economic calendar, and I constantly have this open on my platform. It’s showing me all the different events that are happening globally. I can filter that to be just on US markets, for example, or UK markets, if I’m trading one of those currency pairs. And then you can see the trend as to how those announcements have been coming out in the past, on the right there.
Oh, so that’s above expectations or below expectations.
And then you’ve got a forecast, as well as you get real-time announcements pop up on your screen. You also get countdown timers, so you know, if you want to be aware of the event prior to it happening so you can set up your trades, you can get triggers for notifications prior.
And also, just looking at the [GBP] ticket as well, just on FX costs, you know, how a broker would charge for… you can see the estimated cost, can you, and is that spread cost or…?
No, that’s your margin. So you’ve got estimated margin down the bottom, so that shows you that for the £1 point I’m doing on this spread bet trade, that’s the amount of margin that I’d need to put up. But then there’s also the estimated cost, and that’s related to the guaranteed stop loss order. So putting on a guaranteed stop loss order is a bit like insurance. You pay a small premium. However, if you don’t use the guaranteed stop loss order, so you get out of that trade early, you’ll get 100 per cent of that money back. So it’s there, it’s a great tool to use.
Because obviously, you have overnight financing.
Yes, we do. So that won’t be on this but we’ve got a product overview that you’ll be able to see all the different costs and when they’re charged on that.
And then also, in the middle top right, you have client sentiment of forex positions.
Yeah, so that’s a general market watch list that I’ve got created there, showing me some of the major indices and FX pairs, and this is what we call the analytics view; it’s showing you the performance for the day, a mini chart, basically showing you the performance over two days, so you can get a feel for has the market just gone down today or has it been a general trend. And then you’ve got the client sentiments, so it’s showing you what clients are currently long and short. So quite often, you’ll start to see those move, and they’re updated every minute, so you can get a really good feel as to if there’s any momentum one way or the other in regards to how other traders are looking at the market.
Okay, interesting. Right, and just moving on to the pros and cons of FX trading. Everybody has exposure to forex in one way or another. You know, there are forex brokers opening up almost on a daily basis. So let’s just quickly talk about the pros and cons, because it’s important to be balanced. So what are the main benefits of forex trading? You know, what, as an individual, be it a private client, semi-professional, professional, you know, what can you get out of forex trading and also, what’s the downside or the risks?
I think it’s really important to cover both. You know, the FX market’s an exciting market. It can be volatile, which then creates opportunity. And the costs involved in FX trading are quite considerably smaller than some other markets; because of that liquidity, your spread costs are a lot lower. It’s a 24-hour market. So there’s always opportunity. So unlike other markets, which can close off at the end of the day, FX provides you with an opportunity to trade at any hour of the day. So some opportunities there, plus you can exposure to different currency pairs. You know, we’ve got 330-odd different currency pairs that you can trade. So you’ve got a varied opportunity base.
But the risks, again, the leverage side of things, you know, it is a double-edged sword in the sense that you can amplify your profits but also amplify your losses. And with FX trading, it’s got the lowest margin requirements, so you’re looking at a leverage of 30:1 or 3.33 margin requirement. So you’re only putting even a smaller amount of money, compared to the total notional value. So yes, that can amplify those profits, but you’ve just got to be careful on the losses side.
So they’re the main pros and cons, I would say, of what FX trading is. So you know, the other one, I guess, on the FX market is as we talked about before, is the unknown, you know, that can actually move the markets quite quickly. Quite often with equities, you’ve got a fairly structured corporate calendar that tells you when dividends are going to be paid, things are going to happen. You do get those shock announcements every so often, but we with the FX market, you know, somebody can come out and say something and they can move very, very quickly.
And moving on, just tapping into your experience, you know, having been in the forex markets for a while, of all the clients you’ve seen, what would you say are the top three mistakes that people do when they lose money? Whether you know, they come into the market with unreasonable expectations or they’re just not managing their account properly. What’s the sort of top three mistakes that you’ve seen, and what can people do to avoid them?
I think with the FX market, because there is so much opportunities all the time, I think the number one for this particular market by itself is definitely overtrading. There are a lot of people that will trade, constantly get in and out of the market because it’ll move so quickly, 50, 60 points within five/ten minutes. So they’ll see this opportunity, they’ll get in without doing the necessary research to sort of understand why it’s moving the way it is. With FX as well, I have a strong feeling that it’s both a technical and fundamental trade. It’s not just one or the other. So actually getting a bit of a feel and doing your research in regards to, you know, what the technical side of things like key levels, resistance support levels, and also what are the fundamentals and how they both combine to create a trading opportunity. But then the other one is trading too much, like as in the size of your trades, because you obviously see this opportunity and you think well, if I do a bigger trade, I’ll make more money. You really should sit within the boundaries of what your account is. So there’s some basic techniques out there that you only risk two per cent of your money on any one trade so that you’re not overexposed in the markets. You can push that up to five per cent if you’ve got a smaller account.
So those sorts of things are probably the key mistakes. And then the other one is literally leaving what I call a naked trade. You’ve got a market order out there, you haven’t protected it with a stop loss, which you know, considering the volatility, it’s really important to make sure that you do.
Interesting. Alright, well brilliant. Ryan, thank you very much for your time.
And thank you very much for watching our Good Money Guide TV section on forex brokers.
Forex trading or FX trading (short for Foreign Exchange Trading), can be defined as converting the currency from one country in to the currency of another. As a trading market it is the most active in the World because;
- The market never sleeps - Because global financial markets open at different times across different time zones, Forex trading operates 5 days a week. Key financial cities around the World like; London, Tokyo, Singapore, Zurich, Frankfurt and New York all trade forex.
- There is a genuine need to exchange currencies - big companies move money internationally frequently, as do travellers, governments and more. It is because of this need that the forex market is so active globally and so dynamic.
- Floating exchange rates have become more common - rather than global currencies being valued against gold, currencies commonly have "floating exchange rates", this means their values can fluctuate meaning forex trading can offer traders a way to profit.
Our guide what is forex trading covers, why and if you should trade forex, what forex pairs to trade, types of forex orders, what are the main risks of forex trading, trading forex around economic figures, technical analysis versus fundamental analysis as well as managing fx risk.
How to choose a Forex Broker?
We include the top ten Forex brokers above because they each meet the following criteria:
- Each FX broker is authorised and regulated by the Financial Conduct Authority
- Every FX company here has an office in London, the global centre of the FX market
- They all offer customers 24/5 customer support and online trading
- Each offer industry standard tights spreads and low trading costs for active customers
- These brokers provide at least one form of added value over other foreign exchange brokers
So, if you are new to forex trading or looking for the best broker to trade forex with, then you have come to the right place. Because we set high standards as to the brokers we include within our comparison you can be confident that the brokers included here are amongst the best in the World.
There are hundreds of FX brokers offering access to the FX market so customers can trade forex online.
We aim to help new and experienced FX traders find a secure and safe broker for their trading.
The Best Forex Brokers that offer trading on MT4
MT4 is one of the best trading platforms for speculating on the FX market. There are around 600 brokers that provide access to MT4 through their Forex accounts. However, of the 600 only a handful are really any good and offer significant value above the competition. MT4 brokers gives traders some of the best tools in the market from. Automated trading signs, expert advisers for professional traders, technical analysis and indicators it is well worth choosing a trusted MT4 broker for forex trading.
Best Forex trading accounts for trading EURUSD, GBPUSD and USDJPY online
The top three traded currency pairs are where the best brokers win business from their competitors. Many Forex brokers now offer access to over 10,000 asset classes from UK, EUR, and US shares, indices, commodities to fixed income. But the majority of trading volume will go through the most liquid Forex pairs, EURGBP, USDJPY and GBPUSD.
Which currency pairs can I trade forex in?
Most brokers will let you trade on a large number of forex currency pairs. Some of the most popular major currency pairs are;
- GBP (British pound sterling, £) - USD (United States dollar, $)
- GBP - EUR (euro, €)
- GBP - JPY (Japanese yen, ¥)
- GBP - PLN (Polish Zloty, zł)
- GBP - SEK (Swedish krona, kr)
- GBP - ZAR (South African rand, R)
- GBP - CAD (Canadian Dollar, C$)
- GBP - CHF (Swiss Franc, fr. CHF)
- GBP - NOK (Norwegian Krone, kr)
- GBP - AUD (Australian Dollar, A$)
Most brokers will let you trade on any currency pairs you may wish to, whether that includes the GBP or not, but if you have a specific currency pair in mind it is worth making sure that you check with each broker you are considering opening an account with to ensure you can invest in those particular currencies.
Foreign currency pairs to trade
USD (United States dollar) currency pairs
Euro currency pairs
Major Forex brokers in the UK – a quick summary.
Here's a summary of the major Forex brokers in the UK. The list offers a concise overview of the biggest, best and most respected forex brokers in the business – all UK based and regulated by the FCA.
Three key points to look for in a Top Forex brokers
It’s important when you choose a forex broker that you understand the risks and rewards of trading foreign exchange online. These key features of any good Fx broker will mean that your expectations are met, your funds are protected, you get a good level or customer service. Our comparison and broker reviews can give you an idea of the pros and cons of each Forex broker to help ensure you are confident in choosing a broker whether you are switching or picking one for the first time.
Trading Forex through an options broker.
Options brokers offer a limited risk way to speculate on the forex markets. You can trade FX options via brokers like Saxo or the market leader IG. However, if you are looking to hedge currency exposure with FX options, OTC FX options from deliverable brokers like RAM or Assure Hedge offer that facility.
Forex Broker Reviews – “top five” Recommended FOREX Brokers…
If you want to find out a little more about the best FX brokers take a few moments to read our reviews. All Forex brokers reviewed are of good standing and authorised and regulated by the Financial Conduct Authority. However, if you would rather take profits tax free you may want to think about reading up on the best forex spread betting companies which can offer tax free profits.
Our top picks for the best forex brokers of 2019
In our 2018 awards, we shortlisted the best forex brokers for speculating on foreign exchange. Here is a breakdown of who we think are the best forex brokers at the moment:
- Saxo Capital Markets - great all round forex access and rates
- IG - the largest CFD and forex spread betting broker
- ETX Capital - offer a simple and robust online forex trading platform
- Spreadex - have excellent personal service with lots of additional markets
- XTB - a very initiative platform for building baskets of FX assets
Three of the best UK forex brokers for beginners and what makes them different
If you have never traded forex before and are looking for the best forex broker for beginners we've put together a handy list of three forex brokers that are a good place to start.
So, here are three of the best forex broker for beginners to get you started.
- IG - Read our full IG review here IG are one of the oldest forex brokers in the UK and the biggest by both market capitalisation and active clients. Pricing is always decent and the IG trading platform is very simple to use. IG also has one of the broadest asset class ranges should you choose to trade other instruments like indices or stocks. IG have just launched a stocks and shares ISA, SIPP and stock broking services so you can hold you long-term investments there as well. IG also have a fantastic "IG Academy" with lots of educational content to help traders better understand the market. That's what makes them a good broker for forex beginners.
- ETX Capital - Read our full ETX Capital review here Ticking all three boxes ETX Capital are authorized and regulated by the FCA and have been a Forex broker since 1965. They are members of the London stock exchange and have one of the simplest platforms to use. They offer very competitive pricing on Forex pairs. ETX also have loads of educational webinars to help traders improve.
- Spreadex - Read our full Spreadex review here We think Spreadex are one of the best UK forex brokers for beginners because thay have a super simple platform, excellent charts and really really good customer service. As with ETX and IG, they are based in the UK (St. Albans) and offer spread betting as well as CFDs on forex. We recently did a video review of their forex trading platform (watch the Spreadex platform review here) and spoke to their CEO about what makes Spreadex a great broker for forex traders just starting out.
If you want to compare the best forex brokers in the UK you can view our forex broker comparison table.
When looking for the best forex broker for beginners you need to look at three things:
Every forex broker needs to start somewhere so if you are a beginner in the world of forex trading then the below information should help;
1. Is the forex broker regulated by the FCA in the UK?
If you are trading in the UK this is really important. If you are a beginner to FX trading it is imperative that you are protected as a client. Never ever, trade with a broker that is not regulated by the FCA. When a forex broker is regulated by the FCA, it means that client funds are protected by the FSCS.
You can look up whether or not a broker is regulated by the FCA on the FCA register here
2. What sort of forex market access do they offer?
If you are a beginner to trading forex, you will probably be focusing on a few major currency pairs like EUR/USD, GBP/USD, and USD/JPY. These tend to be the most heavily traded and as such have good liquidity (lots of it to trade) and volatility (moves about a lot).
However, as your forex trading develops you may want to start trading commodities, stocks, or indices. Whilst the majority of brokers offer limited access to markets, the brokers we think are best for forex beginners are the ones that offer a broad range of things to trade.
Who knows, one day you might like the look of the bund, bobl and schatz markets. It would be a pain to not have them on your forex trading platform too.
3. How easy to use is their trading platform for forex beginners in the UK?
Forex is essentially just an up-down bet on a currency pair so it's best to start off with an easy to use platform. Most forex brokers will offer a platform called MT4, which can be either mega easy or mega complicated (depending on how the broker has set it up.
However, good forex brokers for beginners in the UK should have their own platform for trading too. These in-house platforms are often easier to use. So the brokers we've highlighted as being good for UK forex beginners all have their own platform.
Plus, forex trading is hard enough, without having to deal with an overly complicated, hard to use platforms.
Best forex brokers with small minimum deposits
If you are looking for the best forex brokers minimum deposit then consider choosing a forex broker that offers small deposit sizes.
If you new to forex trading one of the most important things to get right first is your choice of forex broker. At the Good Broker Guide we only feature forex brokers that are regulated by the FCA, based in the UK and where client funds are protected by the FSCS.
Each of these brokers can offer an account with minimum deposit of only £100.
- IG - A very simple yet expansive platform with great customer service and educational material
- ETX Capital - They are one of the oldest brokers in the forex market having started out as Monecor in 1965.
- Core Spreads - if you are just getting started and want a simple trading platform with really tight pricing then take a look at Core Spreads.
It's important that when you search for the best forex brokers minimum deposit that you bear in mind that trading forex is risky. If you only have a small amount of money to trade with and are just interested in seeing if you can beat the market never trade with more than you can afford to lose.
Which Are The Best Forex Brokers For Large Accounts (deposits & volume)?
If you are a big forex trader, you need a forex broker that caters for large clients. The key features to look for in Forex broker for large accounts are how financially secure the broker is, how reliable the trading platform is for large volume or high volume and the experience of the brokers who can offer telephone support.
Dealing with experienced brokers who regularly service high net worth clients and large accounts (by large we mean £50k plus) is that they are able to deal with trading errors and issues quickly and commercially. If you choose the wrong broker a simple mistake can turn in a huge problem if not dealt with swiftly.
Here are three Forex brokers that service high net worth individuals with large Forex accounts
- IG (good for all-around market access) IG is the clear leader in Forex trading in the UK with over 40 years of experience. They are the largest Forex broker by market cap (currently valued at over £2bn) and are listed on the London Stock Exchange. They have dedicated teams that look after clients with large balances on a personal basis. Having a team means that your issues can be dealt with quickly if you put the business through they can offer preferential rates for high volume traders. IG are a well respected, established and experienced broker who can deal with anyone from the smallest trader to the largest hedge fund. You can open an account or find out more here. IG offer Forex trading via MT4, CFDs and Spread Betting (tax-free profits) and have some pretty decent margin rates as well as the tightest spreads on some Forex pairs.
- ETX Capital (good for high net worth individuals) ETX Capital (like IG) offer MT4 as well as their own platform. For high net worth traders looking for the best broker for large forex accounts, they are a good place to start. ETX have been around since 1965 and have institutional pedigree and an experienced sales trading desk. They also offer weekly and daily analysis for Forex traders and some good technical analysis platforms. Read our ETX Capital review.
- Spreadex (good for personal service) If you're looking for a small broker with lots of experience then go with Spreadex. For large accounts, they offer a very personal service and specialise in phone brokerage. You can also have a punt on the horses or the football through their sports spread betting arm. A smaller, but excellent alternative to the mainstream UK Forex brokers. You can check out their Forex costs and open an account online here.
What is Forex Trading? Read Our Free Guide To Forex Trading
If you've just asked what is forex trading read on for our guide to understanding Forex trading.
Forex is the short name for 'foreign exchange'. It is a market about trading money. It is about measuring one money against another every other foreign currency. For example, pound sterling versus the US Dollar.
The first thing to know about forex market is that it never sleeps. FX trading operates in all time zones five days a week; in all key financial centres like Tokyo, Singapore, Zurich, Frankfurt, London, New York. One exchange closes, the other opens.
The second thing when wanting to discover what is forex trading is to know is that forex is one of the largest financial markets in the world. Companies move capital across borders all the time, as do travellers, foreign workers, and governments. Billions of forex trading occur every 24 hours. There is a genuine need to exchange currencies.
The third thing you should understand is that forex trading only came about after the demise of Bretton Woods monetary system in early seventies. Before that, major currencies are based on gold. Now, most currencies fluctuate in value over time. Some drastically so. This is a characteristic of the fiat (ie, paper) monetary system.
Once in a while, a central bank can even impose control on the value of its currency. The Swiss National Bank, for example, capped the value of the Swiss Franc in 2011 when the currency surged uncontrollably.
The last thing you need to note is that foreign exchange movements are relative. It is one value versus another, like a ratio. Most forex is priced relative to the US Dollar because of America's outsized influence on world economy affairs, ie, the number of local currencies per US Dollar. When a FX rate is quoted without USD, it is called a 'cross rate'.
Best Brokers For Trading Forex
Forex is a 24-hour, 5-days a week market. Prices never stop blinking. You can trade forex with CFDs futures, forwards, spread bets, or even exchange-traded funds (ETF). Because of this liquidity, there are forex trends that astute traders can exploit.
Read more about these top Forex brokers:
Or compare all brokers for Forex trading with our comparison tables
3 Reasons why you may consider buying and selling forex
The connectivity of the internet has democratised forex trading. The proliferation of advance trading software give you tools that only professionals had in the past. You can execute algo trading in forex markets, where buying and selling orders can be set up automatically. You can trade currencies both ways - buy and sell - easily. Leverage is easily obtainable from brokers. Hence, forex market is well suited to tech-savvy, independent thinkers.
Interestingly, returns from the forex market can be largely independent to that of the stock markets. This is because factors influencing forex returns may be different to that of stocks or bonds. There are periods when exchange rates are trending while stocks prices are static. Multi-asset funds are thus eager for these returns from the forex market because it helps to lower overall volatility.
Lastly, there are forex strategies that exploit interest rate differential. Broadly speaking, you first borrow from currencies with lower interest rates and then buy currencies with higher interest rates. This is known as the 'carry trade'. During 2003-2006 it was popular to borrow in Japanese Yen and buy Pound Sterling because interest rates were low in Japan and high in the UK.
What forex pairs to trade?
For beginners (or even intermediate) traders, you should focus on key forex pairs that are liquid. This is because liquid FX pairs generally have lower bid-ask spreads. Also, these forex pairs are floating (most of the time anyway) and are not controlled by the central banks.
The top five forex denominations are (three letters of :
- EUR-pairs (Euro was born on January 1, 1999)
This is followed by: CAD, AUD, SGD, CNY, MXN, among others.
Countries with lots of commodity exports, such as Australia and Canada, are known as commodity currencies. The prices of commodities will impact their currencies to a certain degree.
Types of forex orders
Broadly speaking, there are two main type of entry orders. One that you wish to enter straightaway ('market') or at certain levels ('limit').
There are advantages and disadvantages in each selection. The former ensures you are in the market quickly but your entry price may be subject to the prevailing conditions when you buy into it. The latter may give you better entry prices, but you may not execute the order. Prices may have simply run away.
What are the risks of trading forex
Trading forex is a risky activity. Harbour no doubts about this.
The first risk is leverage. Many retail accounts lose over time because of the overly high leverage. Minute, random price movements decimate accounts equity quickly if traders are caught on the wrong side. Small losses piled up. This can lead to early termination of the account.
The second risk comes from sudden price moves. For example, when the Swiss National Bank suddenly removed its cap in 2015 without prior warnings, it literally blew unrecoverable holes in many broker accounts because few traders expected the event. They were positioned in the wrong way - ie, the cap stays - and the removal of the cap led to huge moves in the opposite direction. Brexit was another such event.
Volatile price moves can lead to a dry-up in liquidity. Traders will experience in a huge increase in bid-ask spreads during these volatile periods, especially when brokers themselves are under stress.
The third risk comes from brokers. Choose your broker well. Inferior ones lead to higher spreads and commissions, which encroach returns and add transaction costs. Occasionally, forex brokers can go bust, leaving customer accounts in limbo. Find you if your broker is regulated or not and if customers funds are segregated.
Another risk comes from inappropriate trading strategies for the market. For example, trend-following strategies may be suited for some forex pairs; while reversionary strategies for better in other pairs. You will need to backtest strategies and conduct some dummy trading to ensure that the strategy you choose is viable for that particular forex market.
Other classic trading mistakes include: Overtrading the account, undercapitalised funding, a lack of basic risk control, and the inability to shift strategies over time.
Trading forex around economic figures
Trading forex can be particularly tricky on the release of key economy data. Five set of economic figures you should watch out for include the following:
- GDP figures
- Unemployment rate
- Inflation figures
- Manufacturing/Services data
- Retail/Consumer spending
The key to trading around the release of these figures is the market's reaction. If, say, the stock market reacted badly to a set of the GDP figures, it tells you something about the prior expectations. Too optimistic.
So you should definitely keep abreast of future economic data releases and plan accordingly. Note the market consensus.
Should you use technical analysis or fundamental analysis for forex trading
Forex trading can be based fundamentals or technicals. What's the difference?
In general, the former use macro insights to produce buy and sell recommendations. The latter use prices only to determine entry and exit orders. Some may use both (hybrids).
Which is more effective? It depends two issues. The first one is, which system are you more compatible with? The second issue regards your ability to follow the method. Some traders eschew technical analysis because they believe technical analysis to be no better than random trading. Meanwhile, many CTA funds have profited from using technical analysis methods exclusively. So the argument about which method is better is futile. The key is trader-strategy compatibility.
Three tips on managing risk when trading forex
When embarking on trading activities (or investments), the first rule to learn is that no one will be profitable 100% of the time. Even the greatest investor can't achieve this feat.
What this means is that you will need to prepare for losses on a significant amount of the trades.
Losses can be separated into two types. The first is small recurring ones. The second is large devastating ones. To survive long term, you will need to avoid the latter totally. Remember this rule of thumb: A 50% loss means the fund needs a 100% gain just to breakeven. A 90% loss? You will need a 900% gain to return to the starting point! How often do you see this sort of gain?
How do you avoid large losses? One, do not bet too much on any single trade. Diversify into different pairs. Second, ensure small losses do not swell into large losses. Stop it every time. How? Use stop losses. Swallow one's ego and take the loss when they are small. When a trade is going against your way, it could last for a long time. Get out is the preferred method.
For some spread betting firms, there is a guaranteed stop losses where the trade will be taken off once prices move adversely against you.
On small - but consecutive - losses, either you break trading altogether or lower position sizes. Small repeated losses can be demoralising because they can last for some time. Predicting when the tide will turn for that particular strategy is hardly possible.
How to avoid Forex scams
We've produced two guides on how to avoid currency trading scams - you can read more about them here:
- The FCA's approach to social media Forex scams
- How the major media and newspapers get scammed by forex scammers